Ragnar Nurkse's balanced growth theory

The balanced growth theory is an economic theory pioneered by the economist Ragnar Nurkse (1907–1959). The theory hypothesises that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously.^[1]^[2] This will enlarge the market size, increase productivity, and provide an incentive for the private sector to invest.

Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy.^[3] He recognised that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other.

Nurkse and Paul Rosenstein-Rodan were the pioneers of balanced growth theory and much of how it is understood today dates back to their work.^[4]

Nurkse's theory discusses how the poor size of the market in underdeveloped countries perpetuates its underdeveloped state.^[5]^[6] Nurkse has also clarified the various determinants of the market size and puts primary focus on productivity.^[3]^[7] According to him, if the productivity levels rise in a less developed country, its market size will expand and thus it can eventually become a developed economy. Apart from this, Nurkse has been nicknamed an export pessimist, as he feels that the finances to make investments in underdeveloped countries must arise from their own domestic territory.^[1] No importance should be given to promoting exports.^[8]

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